Govt to allow big PFs to invest in PSU oil bonds
The government will allow provident funds (PFs) with a corpus of over Rs 1,80,000 crore to buy oil bonds being issued to PSU oil companies as a compensation for selling petro-products at lower prices.
By MK Venu and Soma Banerjee , TNN |
NEW DELHI: The government will allow provident funds (PFs) with a corpus of over Rs 1,80,000 crore to buy oil bonds being issued to PSU oil companies as a compensation for selling petro-products at lower prices. The government will issue bonds worth Rs 24,000 crore to PSU oil companies for the fiscal ’06-07. By letting PFs buy these bonds, the government is also ensuring no undue pressure is put on liquidity in the banking system.
Earlier, PSUs would borrow from banks against oil bonds. However, since there is a general upward pressure on interest rates, the government has decided to open up PF money for these bonds, which will give 7-8% interest.
The petroleum and finance ministry officials have been deliberating over the features of the bond. There are indications that the bonds will be statutory liquidity ratio (SLR) eligible and would be tradable.
Put simply, investments in these bonds will count towards the SLR of banks. This enables banks to buy these bonds at a later stage when they have adequate liquidity.
The oil bonds to be issued to the oil companies will total Rs 24,000 crore, if crude oil prices continue to remain at current price levels. This is over and above the subsidy bailout package by ONGC, which is given through discounts on crude oil prices. Oil marketing companies which have been incurring huge losses on the sales of all fuels — petrol, diesel, LPG and kerosene — will need these bonds to get back into the black.
At least two of the three oil companies have registered losses in the first quarter. IOC managed to stay afloat, primarily due to revenues received from the sale of part of its equity in ONGC. The supplementary Budget passed by Parliament has approved issuance of bonds of about Rs 14,000 crore.
The finance ministry said once these bonds become easily marketable and are sold to the PFs, the oil PSUs will automatically be expected to pay taxes on the margins recovered. This will also swell the finance ministry’s kitty. In a sense, this is a win-win solution from everyone’s standpoint, said an official.
Earlier, PSUs would borrow from banks against oil bonds. However, since there is a general upward pressure on interest rates, the government has decided to open up PF money for these bonds, which will give 7-8% interest.
The petroleum and finance ministry officials have been deliberating over the features of the bond. There are indications that the bonds will be statutory liquidity ratio (SLR) eligible and would be tradable.
Put simply, investments in these bonds will count towards the SLR of banks. This enables banks to buy these bonds at a later stage when they have adequate liquidity.
The oil bonds to be issued to the oil companies will total Rs 24,000 crore, if crude oil prices continue to remain at current price levels. This is over and above the subsidy bailout package by ONGC, which is given through discounts on crude oil prices. Oil marketing companies which have been incurring huge losses on the sales of all fuels — petrol, diesel, LPG and kerosene — will need these bonds to get back into the black.
At least two of the three oil companies have registered losses in the first quarter. IOC managed to stay afloat, primarily due to revenues received from the sale of part of its equity in ONGC. The supplementary Budget passed by Parliament has approved issuance of bonds of about Rs 14,000 crore.
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The finance ministry said once these bonds become easily marketable and are sold to the PFs, the oil PSUs will automatically be expected to pay taxes on the margins recovered. This will also swell the finance ministry’s kitty. In a sense, this is a win-win solution from everyone’s standpoint, said an official.
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